Texas Instruments (TXN) Down 2.1% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Texas Instruments (TXN). Shares have lost about 2.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Texas Instruments due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Texas Instruments Beats on Q4 Earnings

Texas Instruments reported fourth-quarter 2019 earnings of $1.12 per share, which surpassed the Zacks Consensus Estimate by 9.8%. Further, the figure came within management’s guided range of 91 cents to $1.09 per share.

However, the reported figure declined 11.8% and 24.8% year over year and sequentially, respectively.

The company reported revenues of $3.35 billion, which beat the Zacks Consensus Estimate by 3.9%. The top line also came above management’s guided range of $3.07-$3.33 billion.

However, the figure declined 10% from the year-ago quarter and 11.2% from the previous quarter.

Persistent weakening in end-market conditions led to sluggishness in the company's Analog and Embedded Processing segments. This, in turn, hurt the top line.

Nevertheless, the company’s focus on innovation of product portfolio across both the segments is evident from growing research and development (R&D) spending. This continues to be a key catalyst. Further, Texas Instruments continues to increase investments in the automotive and industrial markets, which are anticipated to bode well in the long run.

Moreover, the company remains confident on portfolio strength, efficient manufacturing strategies and optimized capital allocation in growth areas.

Additionally, continuous returns to shareholders are likely to help the stock rebound in the near term.

End-Market in Detail

Texas Instrument’s revenues were down 3% to 4% from the year-ago quarter in the industrial, automotive, enterprise systems and personal electronics markets.

Further, revenues were down 50% year over year in the communications equipment market during the reported quarter. Texas Instruments witnessed weak momentum across all its major customers and geographies.

Segments in Detail

Analog: The company generated $2.497 billion from this segment (74.5% of total revenues), which decreased 5% from the year-ago quarter. This can be attributed to weak performance of high-volume, signal chain and power product lines.

Embedded Processing: This segment generated $633 million revenues (18.9% of total revenues), down 20% year over year. This was primarily owing to weak performance of processors and connected microcontrollers.

Other: Revenues in this segment were $220 million (6.6% of total revenues). The figure was down 24% from the year-ago quarter.

Operating Details

Texas Instruments’ gross margin of 62.6% contracted 210 bps from the year-ago quarter.

Although selling, general and administrative (SG&A) expenses contracted 120 bps year over year to $412 million in the reported quarter, research and development expenses expanded 70 bps from the year-ago quarter to $414 million.

Operating margin was 37.3%, contracting 350 bps from the prior-year quarter.

Balance Sheet and Cash Flow

As of Dec 31, 2019, cash and short-term investments balance came in $5.4 billion, which increased from $5.1 billion as of Sep 30, 2019.

At the end of the reported quarter, the company had long-term debt of $5.303 billion, up from $5.302 billion in the prior quarter.

The company generated $1.8 billion of cash from operations, down from $1.9 billion in the previous quarter.

Capex was $163 million in the fourth quarter. Further, free cash flow stood at $1.6 billion.

Additionally, Texas Instruments paid out dividends worth $841 million during the reported quarter. Further, it repurchased shares worth $489 million.

Guidance

For first-quarter 2020, the company expects revenues between $3.12 billion and $3.38 billion.

Earnings are expected in the range of 96 cents to $1.14 per share. The guidance includes an estimated $20 million discrete tax benefit.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

Currently, Texas Instruments has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Texas Instruments has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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